The Day My Satellite Radio Died

Sirius XM is still feeling the heat after its controversial cost-slashing.

It was a week ago today that I turned on my car to learn that Fred is dead. That's what I said.

Fred, the 80s-sipping new wave channel on Sirius XM Radio's (NASDAQ:SIRI), was one of the many XM commercial-free music stations replaced by somewhat similar Sirius alternatives last Wednesday morning. Fred was toast. 1st Wave is the new Fred.

I recounted the experience with Mike Snider from USA Today over the weekend. I wound up being the anecdotal lead in his column yesterday.

Being singled out is typically the result of standing out. Unfortunately for Sirius XM, I am not the only one.

I hear youThere have been 79 comments tacked on to the end of my original article on the satellite radio switch last week. Apparently the satellite radio provider has hit a nerve with its subscriber base.

"I am very disappointed with the removal of BOOMBOX and BACKSPIN," writes efy007. "Sirius is supposed to provide genres that are not available on FM Radio. They did this, up until the merger. I am truly disgusted. I hope and wait to see if they see enough feedback that they adjust their lineup. But, if they don't, I will cancel as the stations I listen to just done exist anymore."

"I have been with Sirius for 4 years, and I just cancelled my subscription," posts maxwell303. "They even offered to give me 3 free months for both of my radios, but I declined. There were 4 stations (Left of Center, Purejazz, The Pulse, & Chill) that I listened to regularly, and 3 of them went away or changed drastically. Well I guess ITUNES can get my monthly budget that used to go to SIRIUS. Such a shame. First Tower Records goes out of business and now Sirius sucks! Another day the music died."

"I just called Sirius to cancel my service because my car had been stolen and I don't plan on replacing it for a while," sensij notes. "I was on hold for close to 10 minutes waiting for an operator, who informed me that they have been *swamped* with cancellations since the merger this week. She was excited to finally talk to someone canceling for a different reason!"

"I have four Sirius subscriptions because I really enjoyed the electronic music channels," writes mp3man2000. "I was shocked last Wednesday morning when I found my favorite channel 39/Boombox, replaced by pop2k (pop hits of the 2000s)??? Great, just what I wanted, MORE access to top40!? I can get that from any three FM stations in my home town for FREE. If something is not done about this, I plan on canceling all four of my subs next month."

There's more, but you get the point. Obviously a few negative reactions make for an incomplete sample. The vast majority of the company's 18.9 million subscribers are either fine with the moves or are willing to stomach the changes. However, how many cancellations can Sirius XM take at this point?

Not many, one would think.

Bad press at a bad timeCyberspace is alive with cancellation stories over the past week, many of them alleging to be axing multiple receivers. Sirius XM has already hosed down its expectations for the current quarter. It expects to close out the year with just 19.1 million active receivers, a mere 200,000 net gain sequentially. If the cancellations are in the thousands or tens of thousands, the company's monthly churn rate will bump higher than the 1.7% rate it posted in the third quarter. However, what if we're talking about hundreds of thousands of cancellations?

I can't be the only one recalling last year's XM promise.

"XM's programming, including Major League Baseball, Oprah & Friends, Bob Dylan, Opie & Anthony, and commercial-free music channels, will not be interrupted by the merger," XM promised last summer.

It may have bended that promise when it temporarily suspended Opie & Anthony after some on-air remarks, but how about now when so many channels are being replaced? Can Sirius XM afford to be moving the furniture at this penny-pinching moment?

Consumers are really being prudent with their money. Just consider the following recent nuggets that indicate tighter guarding of discretionary income:

Netflix(NASDAQ:NFLX)lowered its subscriber targets last month, with the average consumer paying nearly $1 less monthly for the service than he was a year ago.

On the satellite television front, Dish Network(NASDAQ:DISH) closed out its latest quarter with fewer subscribers than when it started. Rival DirecTV(NYSE:DTV) gained subscribers, as it typically does heading into the NFL season, but at a much slower pace than a year earlier.

Rhapsody provider RealNetworks(NASDAQ:RNWK) saw a slight uptick in music subscriptions during the third quarter, but is lowering its overall guidance for the current period.

Clearly we're in a very sensitive market. The last thing a subscription service needs is to give its cost-slashing customer a reason to cancel. The timing also couldn't be worse, with more than $1 billion of the company's $3.4 billion in debt due to be repaid next year. Creditors applaud cost-cutting initiatives, but it's a different story if growth turns the other way.

Searching for a scapegoatIf Sirius XM does come up short in the holiday quarter, you can be sure that it won't point at last Wednesday's switcheroo as the culprit. It will seek out external factors. It can certainly do that, as the weakness at other subscription-based entertainment services justify the softness.

However, what if an analyst asks the company specifically about the number of cancellations immediately following last week's programming shift? Will CEO Mel Karmazin own up to the numbers? I hope he does. I hope he's also armed with the cost-savings behind the move to at least deflect any of the potential criticism.

If the holiday quarter finds Apple(NASDAQ:AAPL) booming on the iTunes front and music subscription services like Rhapsody and Best Buy's (NYSE:BBY) Napster faring relatively better, Karmazin will need to justify the reasons to kill Fred, Lucy, and Ethel.

Author

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.
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